BUSINESS COLLEGE

Gibson Company paid $12,000 on June 1, 2014 for a two-year insurance policy and recorded the entire amount as Insurance Expense. The December 31, 2014 adjusting entry is A. Debit Prepaid Insurance and credit Insurance Expense, $3,500 B. Debit Prepaid Insurance and credit Insurance Expense, $8,500 C. Debit Insurance Expense and credit Prepaid Insurance, $3,500 D. Debit Insurance Expense and credit Prepaid Insurance, $8,500

Answers

Answer 1

Answer:

Answer:

None of the options is correct, given the facts in the question.

The appropriate answer is:

Debit Prepaid insurance $12,000

Credit Insurance expenses $12,000

(Reversal of erroneous posting to insurance expenses)

Debit Insurance expenses $3,000

Credit Prepaid insurance $3,000

(To record 6 months prepaid insurance amortization)

Explanation:

Prepaid insurance is a payment for insurance policy premium in advance, whose service has not been fully enjoyed.

Gibson Company paid $12,000 for a two-year insurance policy. This was erroneously recorded as an expense. This wrong posting has to be reversed for the purpose of audit trail, as provided by the first journal.

To determine the monthly amortization, simply divide $12,000 by 24 months to arrive $500 amortization monthly. Since we are adjusting for December 31, 2014 (6 months from June 1, 2014), the 2014 amortization will be $500 x 6 months = $3,000. This has to be adjusted for by applying the second journals above.

Related Questions

Fred Company paid $48,000 for a two-year insurance policy, ($2,000 per month), on October 1 and recorded the $48,000 as a debit to Prepaid Insurance and a credit to Cash. What adjusting entry should Fred make on December 31, the end of the accounting period (no previous adjustment has been made)? Select one: a. Debit: Prepaid Insurance 6,000 Credit: Insurance Expense 6,000 b. Debit : Insurance Expense 6,000 Credit: Prepaid Insurance 6,000 c. Debit: Insurance Expense 24,000 Credit: Prepaid Insurance 24,000 d. Debit: Prepaid Insurance 42,000 Credit: Insurance Expense 42,000
mz technologies’ dividend growth is expected to decline gradually. for the next four years, the growth is expected to be 20%. in years 5,6 and 7 it is expected to grow at 16%, 12% and 8%. during year 8 and beyond, dividends are expected to grow at 5% for perpetuity. assume the last dividend paid was $1 (a moment ago) and the required rate of return is 10%. what is the current price?
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On January 2, 2020, real property taxes were levied for the year in the amount of $1,878,700. It was estimated that 2 percent of the levy would be uncollectible. Required: Record this transaction in both the General Fund and governmental activities journal. (Note: Type 4-a-1 as the paragraph number in the [Add description] field for this entry; 4-a-2 for the next transaction, etc. Careful referencing by paragraph number is very helpful should you need to determine where you may have omitted a required journal entry or made an error.) For the General Fund you will be directed to the Detail Journal. Select "Accrued Revenue" in the drop down [Description] menu in the Detail Journal related to the General Fund entry.

In a period of rising prices, the inventory method which tends to give the highest reported net income is:a. base stock.
b. first-in, first-out.
c. last-in, first-out.
d. weighted-average.

Answers

Answer:

b. first-in, first-out.

Explanation:

Generally, there are three methods for estimating the inventory shown below:

1. First-in-first, the company is selling the old products in this way than the new ones, which means first selling the old products and then selling the new ones

2. Weighted average method: Weighted cost is measured by considering the total revenue and total purchase

3. Last-in-first-out: Contrary to the first-in-first-out process, the first sale of new goods, then selling of old goods.

4. Base stock: The process by which the orders of the consumer are fulfilled by holding the less inventory

In the FIFO method, the highest ended inventory results in the lower cost of goods sold at the highest net profits.

Final answer:

In a period of rising prices, the first-in, first-out (FIFO) inventory method gives the highest reported net income because it records the oldest, less costly inventory as cost of goods sold, leaving the more expensive recent inventory on hand.

Explanation:

The inventory method which tends to give the highest reported net income in a period of rising prices is first-in, first-out (FIFO). The FIFO method assumes that the earliest goods purchased are the first to be sold. During a period of rising prices, the oldest inventory, which cost less, is recorded as cost of goods sold, leaving the newer, more costly inventory on hand. As a result, the cost of goods sold (an expense) would be lower, and, therefore, net income would be higher. Contrarily, the Last-in, first-out (LIFO) method would tend to show a lower net income in a period of rising prices because the more expensive recent inventory would be recorded as cost of goods sold first.

Similarly, the base stock and weighted-average methods may not reflect the highest net income in a period of rising prices as they take different approaches in calculating inventory and cost of goods sold.

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Transfer Pricing, Idle Capacity Mouton & Perrier, Inc., has a number of divisions that produce liquors, bottled water, and glassware. The Glassware Division manufactures a variety of bottles that can be sold externally (to soft-drink and juice bottlers) or internally to Mouton & Perrier's Bottled Wat Division. Sales and cost data on a case of 24 basic 12-ounce bottles are as follows Unit selling price Unit variable cost Unit product fixed cost* Practical capacity in cases $350,000/500,000 During the coming year, the Glassware Division expects to sell 390,000 cases of this bottle. The Bottled Water Division currently plans to buy 100,000 cases on the outside market for $2.95 each. Ellyn Burridge, manager of the Glassware Division, approached Justin Thomas, manager of the Bottled Water Division, and offered to sell the 100,000 cases for $2.89 each. Ellyn explained to Justin that she can avoid selling costs of $0.12 per case by selling internally and that she would split the savings by offering a $0.06 discount on the usual price $2.95 $1.25 $0.70 500,000 Required 1. What is the minimum transfer price that the Glassware Division would be willing to accept? Round to the nearest cent. per unit What is the maximum transfer price that the Bottled Water Division would be willing to pay? Round to the nearest cent. per unit Should an internal transfer take place? Yes What would be the benefit (or loss) to the firm as a whole if the internal transfer takes place? Benefit V $ 2. Suppose Justin knows that the Glassware Division has idle capacity. Do you think that he would agree to the transfer price of $2.89? No Suppose he counters with an offer to pay $2.40. If you were Ellyn, would you be interested in this price? Yes 3. Suppose that Mouton & Perrier's policy is that all internal transfers take place at full manufacturing cost. What would the transfer price be? Round to the nearest cent. per unit

Answers

Answer:

1.a- The minimum transfer price will be the marginal cost of the unit thus, the variable cost of 1.25

1.b- the maximum transfer price should be the market price as the company cannot price the units above this cost.

2.a- No as it is including a fixed cost component which is already incurred(sunk cost)

2.b- Yes I will as it is above the 1.25 variable cost which is the cost the division will face to produce the units

3.- full manufacturing cost will include the fixed cost therefore:

1.25 variable cost

+ 0.70 fixed cost

1.95 manufacturing cost

Explanation:

Final answer:

The Glassware Division would accept a minimum transfer price of $1.37 (variable cost plus saved selling costs). The Bottled Water Division would pay up to the external market price of $2.95. An internal transfer is feasible and profitable if the transfer price is within this range. Understanding idle capacity, the Glassware Division might still accept Justin's counteroffer of $2.40, which covers their variable costs.

Explanation:

The minimum transfer price that the Glassware Division would be willing to accept is the unit variable cost of $1.25 plus the saved selling costs of $0.12, equating to $1.37 per unit. The Bottled Water Division would be willing to pay at most the external market price of $2.95 per unit. An internal transfer should take place if the transfer price falls within this range.

Knowing the Glassware Division has idle capacity, Justin might agree to a transfer price of $2.89. However, even if Justin counters with an offer of $2.40, Ellyn might still be interested because this price covers their variable cost, contributes towards fixed costs, and utilizes idle capacity.

If all internal transfers take place at full manufacturing costs, the transfer price would be the sum of the unit variable cost ($1.25) and unit product fixed costs ($0.70), totaling $1.95 per unit. Transfer pricing decisions affect a firm's profitability and operations, and should carefully consider the interests of both divisions.

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Workers and management agree on a contract that gives a 5% wage increase for each of the next three years. Everyone expected 3% inflation but inflation turned out to be 5% per year. Then at the end of three years... a. real wages will be higher than was expected.

b. real wages will have fallen

c. nominal and real wages will have changed by the same percentage.

d. real wages will be lower than was expected.

Answers

Answer:

The correct option is (d)

Explanation:

Real wages are nominal wages less inflation. Nominal wage is not adjusted for inflation. Everyone had expected an inflation of 3% per year while increase in wages per year is 5%. This implied that they will expect real wage of 2% (5% - 3%) per year.

However, it turned out that inflation was 5% per year. This means that real wages were actually 0% (5% - 5%). There was no increase in real wages at all. So, they received lower real wage (actually nil) as against expected real wage of 3% per year.

Colter Steel has $5,600,000 in assets. Temporary current assets $ 3,200,000 Permanent current assets 1,610,000 Fixed assets 790,000 Total assets $ 5,600,000 Short-term rates are 10 percent. Long-term rates are 15 percent. Earnings before interest and taxes are $1,180,000. The tax rate is 20 percent. If long-term financing is perfectly matched (synchronized) with long-term asset needs, and the same is true of short-term financing, what will earnings after taxes be

Answers

Answer:

The Earnings after taxes will be $400,000

Explanation:

According to the data we have the following Long term financing funds of Permanent current assets = $1,610,000 and Fixed assets = $790,000 so the total of Long term financing funds= $ 2,400,000

Also, we have Termperory current assets = $3,200,000

Therefore, the Long term interest expenses = $2,400,000 * 15%

= $360,000

and the Short term interest expenses = $3,200,000* 10%

= $ 320,000

Hence, Total interest expenses=$360,000+$ 320,000=$680,000

So, Earnings before taxes=Earnings before interest and taxes-Interest expenses=$ 1,180,000- $ 680,000=$500,000

The tax rate is 20 percent, hence, taxes=$500,000*20%=$100,000

Therefore, The Earnings after taxes would be=Earnings before taxes-taxes

=$500,000-$100,000

=$400,000

Loki, Inc. and Thor, Inc. have entered into a stock-swap merger agreement whereby Loki will pay a 39% premium over Thor's pre-merger price. If Thor's pre-merger price per share was $42 and Loki's was $51, what exchange ratio will Loki need to offer?

Answers

Answer: 1.15

Explanation:

Premium = 39%

Thor's share price = $42

The compensation to shareholders will be:

= $42 + ($42 × 0.39)

= $42 + $16.38

= $58.38

Loki's share price = $51

We then calculate the exchange ratio which will be:

= $58.38 / $51

= 1.15

Loki will need to offer an exchange rate of 1.15.

The centralized computer technology department of Hardy Company has expenses of $320,000. The department has provided a total of 4,000 hours of service for the period. The Retail Division has used 2,750 hours of computer technology service during the period, and the Commercial Division has used 1,250 hours of computer technology service. Use the following data: Retail Division Commercial Division Sales $2,150,000 $1,200,000 Cost of goods sold 1,300,000 800,000 Selling expenses 150,000 175,000 Required: Determine the divisional income from operations for the Retail Division and the Commercial Division. Refer to the Amount Descriptions list provided for the exact wording of the answer choices for text entries.